FOR: City Council and Rialto Utility Authority Meeting July 23, 2024
TO: Honorable Mayor and City Council
APPROVAL: G. Michael Milhiser, Interim City Manager
FROM: Toyasha Sebbag, Assistant to the City Manager
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Request City Council and Rialto Utility Authority Board 1) Complete the Continued Public Hearing from June 25, 2024, as Required Under Proposition 218; 2) Adopt Resolution No. 8266 and RUA Resolution No. 08-38 Authorizing the Transfer of $30 Million from the City's Unrestricted General Fund Reserve to the Authority’s Water Fund and Wastewater Fund, allocating $5 Million to the Water Reserve Fund and $25 Million to the Wastewater Reserve Fund; and 3) Adopt Resolution No. 8267 Suspending the Utility User Tax from January 1, 2025, through December 31, 2025, for Single-family, Multi-family, and Mobile Home Water and Wastewater Accounts.
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RECOMMENDATION:
Staff recommends that the City Council and Rialto Utility Authority Board
1) Complete the Continued Public Hearing from June 25, 2024, as Required Under Proposition 218;
2) Adopt Resolution No. 8266 and RUA Resolution No. 08-38 Authorizing the Transfer of $30 Million from the City's Unrestricted General Fund Reserve to the Authority’s Water Fund and Wastewater Fund, allocating $5 Million to the Water Reserve Fund and $25 Million to the Wastewater Reserve Fund; and
3) Adopt Resolution No. 8267 Suspending the Utility User Tax from January 1, 2025, through December 31, 2025, for Single-family, Multi-family, and Mobile Home Water and Wastewater Accounts.
BACKGROUND:
On June 25, 2024, the City Council and Rialto Utility Authority (RUA) Board opened the Public Hearing and heard testimony from residents about the proposed water and wastewater rate adjustments. That staff report is ATTACHMENT 1.
ANALYSIS/DISCUSSION
On April 11, 2023, the City Council/RUA authorized a sole source Professional Services Agreement Contract with F.G. Solutions, LLC to complete Phase 1: Water/Wastewater Revenue Analysis of the Water and Wastewater Rate Study. Staff presented the results of the Revenue Analysis to the Water Subcommittee on June 28, 2023, and again on July 26, 2023, to provide answers to questions from the June meeting.
On August 22, 2023, the City Council/RUA authorized staff to proceed with Phase 2, the Water and Wastewater Rate Study.
On December 12, 2023, the City Council adopted Resolution No. 8172, and the Rialto Utility Authority Board adopted Resolution No. 08-25 to set a Public Hearing for February 27, 2024, to consider the proposed water and wastewater utility services rate adjustments.
At the February 27, 2024, City Council/Rialto Utility Authority Board Meeting, staff requested that the item pertaining to a public hearing under Proposition 218 to adjust water and wastewater rates be tabled until a future date to be determined. It was further explained that staff would bring back for City Council and Board consideration to set a new public hearing with new and proper 218 notification materials.
Subsequently, staff requested a 2023 Water and Wastewater Rate Study Amendment No. 1 to a professional services agreement with FG Solutions, LLC, with a timeline to update the rate calculations with rates effective January 1, 2025, 2026, 2027, 2028, and 2029.
On March 26, 2024, the Water Subcommittee provided feedback on the proposed Water and Wastewater Rate Model.
At the April 16, 2024, Utilities Commission Meeting, the Commission recommended placing the item on the City Council/Rialto Utility Authority Board Agenda to set a Public Hearing.
On April 23, 2024, the City Council/Rialto Utility Authority Board approved Resolution No. 8204 and RUA Resolution No. 08-31 to set a Public Hearing for June 25, 2024, as Required Under Proposition 218 to Consider the Proposed Water and Wastewater Utility Services Rate Adjustments as supported by the FG Solutions, LLC Financial Rate Analysis.
At the June 25, 2024, City Council/Rialto Utility Authority Board meeting, the Council/Board approved Resolution No. 8254 and RUA Resolution No. 08-37, establishing a new schedule of water and wastewater/sewer rates for January 1, 2025. ATTACHMENT 2. The presentation given on June 25, 2024, is ATTACHMENT 3. The Council/Board kept the Public Hearing open until July 23, 2024, to allow staff to address additional items, including reclassifying the 2012 Catch-up Lease Payments of $30 million from RUA to the General Fund as a non-interest loan, the potential loan repayment of $30 million from General Fund uncommitted reserves, and the possible temporary suspension of a portion of the levy of Utility Users Tax, prior to City Council/Rialto Authority Board decisions for possible water and wastewater rate increases for calendar years 2026, 2027, 2028, and 2029.
ENVIRONMENTAL IMPACT:
The requested City Council action is not a “Project” as defined by the California Environmental Quality Act (CEQA). Pursuant to Section 15378(a), a “Project” means the whole of an action, which has the potential to result in either a direct physical change in the environment or a reasonably foreseeable indirect physical change in the environment. According to Section 15378(b), a Project does not include (5) Organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment.
GENERAL PLAN CONSISTENCY:
Approval of this action complies with the following:
Our City government will lead by example and will operate in an open, transparent, and responsive manner that meets the needs of the citizens and is a good place to do business.
In addition, approval of this action complies with the City of Rialto General Plan Goals and related Policies:
Policy 3-6.3: Require an increasing level of public safety infrastructure and service capability tied to population increase and increasing service demand.
LEGAL REVIEW:
The City Attorney has reviewed this staff report and Resolutions.
FINANCIAL IMPACT:
Operating Budget Impact
To mitigate the financial impacts of not increasing water and wastewater rates for all or a portion of the 2026-2029 rates, a motion was made to explore transferring $30 million from the General Fund as a loan repayment to the Enterprise Funds. $5 million will be transferred to the Water fund, and $25 million will be transferred to the Wastewater fund. These funds will supplement revenues and be used for each enterprise's operating and/or capital improvement costs. As detailed in the table below, (derived from an analysis conducted by FG Solutions, LLC), additional support from the General Fund may be needed for the Water Fund if rate increases for 2026-2029 are not approved.
Water Fund
As shown in the table below, the $5 million transfer to the Water Fund will be treated as rate stabilization revenue and will be available to be used as needed by Rialto Utility Authority to comply with the Concession Agreement for operating costs, Capital Charges and/or Capital Improvement Project (CIP) costs. Future rate adjustments are anticipated to ultimately achieve a Water Fund that has a balanced budget without the need for a subsidy from the City’s General Fund.
Table 1: Water Fund General Fund Support Needs
The table above includes a $5.3 million loan from the General Fund to RUA, which was authorized by City Resolution No. 8196 and RUA Resolution No. 08-30 on March 26, 2024. This loan will be repaid over 10 years, as shown in the middle column of the table. The first repayment, $700,000, is scheduled for FY 2026/2027.
In the table, the “Additional General Fund Support” column does not include the $5.3 million loan or the $5 million loan repayment to RUA. This column represents the funds required from the General Fund on top of the $5.3 million loan and the $5 million loan repayment.
The “Net Support from General Fund” column shows the additional General Fund support minus the loan repayment. The net General Fund contribution in the table indicates the additional annual General Fund support needed, beyond the $5.3 million and $5 million, to cover the Water Fund’s annual revenue shortfall.
Wastewater Fund
The $25 million transfer to the Wastewater Fund will be treated as rate stabilization revenues and will be available to be used as needed by RUA to comply with the Concession Agreement for operating costs, Capital Charges, and/or CIP costs. Potential Proposition 218 rate increases are anticipated to ultimately achieve a Wastewater Fund that has a balanced budget with no subsidy from the City’s General Fund.
If there are no additional rate increases to the Wastewater Fund, projected rate stabilization of $1 million for FY 2026, $2.8 million for FY 2027, $4.8 million for FY 2028, and $6.7 million for FY 2029 from the Wastewater Reserve Fund is anticipated. It is expected that Wastewater Reserve Funds will be invested until their use is required by the Rialto Utility Authority.
Capital Improvement Budget Impact
With the transfer of $5 million to the Water Fund, the High Priority Capital Improvement Projects (CIP) identified in the May 2024 FG Solutions, LLC Financial Rate Analysis are fully funded through a portion of the transfer, grants, development impact fees, and Rialto Utility Authority Water Reserves.
With the transfer of $25 million to the Wastewater Fund, the High-Priority Capital Improvement Projects outlined in the May 2024 FG Solutions, LLC Financial Rate Analysis are funded through grants, development impact fees, and Rialto Utility Authority Wastewater Reserves. The remaining $31.1 million in CIP costs will be covered by loan or bond proceeds and a portion of the transfer and investment earnings thereon.
Temporarily Suspend Utility User Tax for Water and Wastewater
On June 5, 2018, a Special Election was held, and by a simple majority, the voters of the City of Rialto approved extending the 8% Utility User Tax on telephone, cellular, electricity, gas, sewer, water, and cable television utilities within the City of Rialto, with no sunset clause. In 2018, the Utility User Tax was amended with an exemption for individuals who are 65 years or older such that the exemption applies only to said individuals earning less than $100,000 annually per household, in order to ensure the continuation of the current level of city services for the Residents of Rialto.
To further assist the customers of the Water and Wastewater enterprises in these economic times, it is proposed to temporarily suspend the levy of the Utility User Tax for single-family, multi-family, and mobile home Water and Wastewater Accounts from January 1, 2025, through December 31, 2025. The suspension will begin with the first full billing cycle beginning after January 1, 2025, and will end with the first full billing cycle starting after January 1, 2026.
Currently, the Water rate for the average single-family, multi-family, and mobile home household using 16 hundred cubic feet (ccf) per month is $54.36 per month. Adding the 8% Utility User Tax brings the total average water bill to $58.71 per month. Rate increases have already been approved for 2025. By suspending the Utility User Tax (UUT) for one year, the average total monthly water bill for single-family, multi-family, and mobile home households effective January 1, 2025, is $67.41, which is an increase of $8.70 from the current total monthly bill. If the Utility User Tax is not suspended, the increase would be, $14.09.
Table 2: Monthly Water Rate for single-family, multi-family, and mobile homes with and without UUT
Currently, the Wastewater rate for the average single-family, multi-family, and mobile home household is $62.19 per month. Adding the 8% Utility User Tax brings the total wastewater bill to $67.17 per month. Rate increases have already been approved for 2025. By suspending the Utility User Tax for one year, the total monthly wastewater bill for single-family, multi-family, and mobile home households effective January 1, 2025, is reduced to $67.14, which is a decrease of $0.03 from the current total monthly bill. If the Utility User’s Tax is not suspended, the increase would be $5.34.
Table 3: Monthly Wastewater Rate for single-family, multi-family, and mobile homes with and without UUT
The annual Utility User Tax for water and wastewater brings in approximately $2.1 million and $2.0 million respectively to the General Fund. Of that amount, approximately $600,000 is attributed to water single-family, multi-family, and mobile homes, and approximately $1.7 million is attributed to wastewater single-family, multi-family, and mobile home households. This totals $2.3 million, which is approximately 12% of the $19.1 million in Utility User Tax that the City is projected to collect for FY 2025. The temporary suspension of the Utility User Tax on single-family, multi-family, and mobile home water and wastewater accounts will reduce General Fund revenues by $2.3 million. The City’s current anticipated surplus for the 2024-25 budget is approximately $2.5 million. The $2.3 million reduction in revenue will still allow the City to maintain a balanced budget for the 2024-25 fiscal year.